Certainly, let’s give this article a distinctly English touch.
- The Pound Sterling rises to near 1.2600 against the US Dollar due to positive developments in the Russia-Ukraine peace truce.
- Fears of US President Trump’s tariffs on Canada, Mexico, and China loom large.
- The BoE is expected to follow a careful and gradual policy-easing approach.
The Pound Sterling (GBP) has once again shown its mettle by gaining ground against the US Dollar (USD), following a brief correction phase. Observers noted the sterling’s strengthening to nearly 1.2610 during European trading hours on Monday. Such a rebound comes as the allure of the US Dollar wanes, thanks largely to mounting optimism surrounding a potential peace truce between Russia and Ukraine. This optimism was mirrored in the US Dollar Index (DXY), which fell to near 107.25 from its previous high of 107.65 last Friday. For more background on recent geopolitical developments, you might want to glance at BBC’s coverage on the topic.
Currently, the UK Prime Minister Keir Starmer stands at the helm of what may be a crucial breakthrough in this ongoing crisis. Over the weekend, Starmer met with European leaders, presenting a peace plan to the United States. In attendance was none other than Ukrainian President Volodymyr Zelenskyy, which marked a poignant step toward potentially ending the long-standing conflict in Ukraine. This geopolitical easing has indeed been a balm, diminishing the US Dollar’s safe-haven appeal.
However, it would be wise not to count the proverbial chickens before they hatch. Investors should remain cautious about overly betting against the US Dollar as fears of tariffs loom large. Over in the United States, President Donald Trump remains poised to impose tariffs on Canada, Mexico, and China. This action, in response to their alleged failure to stem the export of fentanyl into the States, has stirred some tension. According to the Wall Street Journal, such tariffs are being considered to address these issues.
US Commerce Secretary Howard Lutnick has affirmed that tariffs on Canada and Mexico are indeed on the cards for Tuesday. He did, however, mention the possibility of negotiation regarding the tariff levels. The President has threatened a 25% levy on Canada and Mexico, while China may find itself facing an additional 10% levy. Trump’s administration had already applied a 10% tariff on China earlier in February, escalating trade tensions.
Technical Analysis: Pound Sterling finds bids near 20-day EMA
The GBP/USD pair has experienced a favorable shift above 1.2600 this Monday. Buyers showed interest following a mean-reversion move close to the 20-day Exponential Moving Average (EMA), hovering around 1.2560. Technically speaking, the 14-day Relative Strength Index (RSI) suggests the bullish fervour has paused, returning to a comfortable range of 40.00-60.00. Despite this, the overarching positive bias remains firmly intact. If one casts their eyes down the charts, the support zone around February 11’s low of 1.2333 is crucial. Conversely, resistance looms at the 50% Fibonacci retracement level of 1.2765.
Daily digest market movers: Pound Sterling trades higher on multiple tailwinds
Allow me to draw your attention to how the Pound Sterling is performing against its major counterparts. At the start of the week, bolstered by a possible Russia-Ukraine peace truce and firm predictions regarding the Bank of England’s (BoE) moderate policy easing, the Pound retains its poise. Moreover, speculations surrounding a potential trade deal between the UK and US lend further support. Last Friday, BoE Deputy Governor Dave Ramsden urged caution regarding monetary policy expansion. The central bank remains reserved amidst persisting inflationary pressures due to wage growth. Ramsden has shifted his outlook, noting that the downside risks to the 2% inflation target have receded. Meanwhile, market sentiments have factored in two interest rate cuts within the calendar year.
This week also beckons US economic data aficionados, waiting expectantly for Friday’s Nonfarm Payrolls (NFP) figures. Such data stands poised to shape market expectations pertaining to the Federal Reserve’s (Fed) monetary policy stance. Current market predictions suggest the Fed may hold interest rates steady through March and May, while the CME FedWatch tool indicates a 77% probability of a cut come June. Monday’s session will revolve around the US ISM and revised S&P Global Manufacturing PMI data for February, shedding further light on America’s economic landscape. It’s anticipated the ISM Manufacturing PMI might decelerate slightly to 50.8 from January’s 50.9.
Allow me to conclude with a touch about our dear, resilient currency:
Pound Sterling FAQs
The Pound Sterling (GBP) holds the distinguished title of the world’s oldest currency, tracing its lineage back to 886 AD. It remains the United Kingdom’s official currency and stands as the fourth most traded in the world, accounting for 12% of all foreign exchange transactions. Its daily average trading amounts to a whopping $630 billion according to 2022 data. Noteworthy pairs include GBP/USD, commonly known as ‘Cable,’ along with GBP/JPY or ‘Dragon’, and EUR/GBP. The Pound Sterling’s issuance falls within the remit of the venerable Bank of England (BoE).
Implementing monetary policy is the BoE’s essential task, aiming always to maintain "price stability" – specifically, a steady inflation rate near 2%. The BoE’s primary tool for achieving this is interest rate modulation. In times of soaring inflation, raising rates restrains easy credit access, thus reinforcing GBP’s strength. Conversely, when inflation dips, signalling economic sluggishness, lowered rates can encourage borrowing for growth projects.
Economic health markers like GDP, Manufacturing and Services PMIs, and employment data all influence the Pound Sterling’s fate. A thriving economy not only triggers foreign investments but may also prompt the BoE to bump interest rates, directly fortifying GBP. Moreover, a positive Trade Balance, which signals a country’s earning from exports exceeds import spend, likewise strengthens the currency.
I trust this sheds more light on the matter! As ever, the financial seas are fickle, but knowledge is the best lifejacket.
